Bottom line: New signals from Qihoo and Wuxi AppTech show they may be getting preferential treatment for A-share listings, as the regulator shifts its policies to favor high-quality private firms for IPOs.
New signals coming from China’s stock regulator hint that it’s softening its stance towards letting companies formerly listed in the US jump the queue for re-listings at home. That appears to be the message, following a string of new reports saying first software security specialist Qihoo 360 and now drugmaker Wuxi AppTech are moving towards re-listings on the China A-share market, both within a relatively short period after leaving New York.
This latest development comes not long after SF Express (Shenzhen: 002352), China’s largest parcel delivery company, completed a backdoor listing in Shenzhen, which again shows the regulator might be easing its view on this kind of path to market. The broader theme here, and one that will be important for other private firms waiting to list in China, is that the securities regulator is finally realizing that it’s not always necessary to use a “first come first served” approach when choosing who gets to make IPOs.
That’s an important shift for the China Securities Regulatory Commission, which traditionally has taken such an impartial approach when approving new company listings. The problem is that the same regulator is also famously slow in approving new listings, with the result that there’s now a backlog of hundreds of companies waiting to list, many of those big state-run enterprises with questionable prospects.
Thus this new series of developments could show the regulator is finally waking up to the reality that China needs more private, quality companies to trade on its main boards, and also needs to be more active to prevent those firms from going to New York, Hong Kong and other overseas markets to list. One of the biggest winners in this shift could be Ant Financial, the former financial arm of Alibaba (NYSE: BABA), which reportedly wants to list in China but would have to jump the queue past hundreds of others to do so.
All that said, let’s jump in with the latest headlines that say both Qihoo and Wuxi AppTech are closing in on China listings. Qihoo is one of China’s leading software developers and also an up-and-coming online search firm, while Wuxi AppTech is a leading drug maker that was formerly known as Wuxi PharmaTech when it was listed in New York.
We’ll begin with Qihoo, whose move is admittedly a bit unclear in terms of how it will position the company for a China IPO. The latest reports say that the company’s major shareholder has changed its name from Tianjin Sike Technology to 360 Technology, and also undergone a share restructuring. (Chinese article) Both moves appear to be prerequisites in preparation for a China listing. The reports also point out that Qihoo faces at least one potential overhang in the form of a lawsuit by another US-listed company, The9 (Nasdaq: NCTY), regarding a joint venture the pair previously planned to form.
Qihoo Under Pressure
The fact of the matter is that Qihoo is under huge pressure to make a China listing as soon as possible, since the company is hugely indebted to other investors that helped to fund its $9.3 billion privatization, the biggest among all Chinese companies that left New York. I’ve previously lauded Qihoo chief Zhou Hongyi for his tenacity at completing such a massive deal, especially in the face of many obstacles, and the latest signs indicate he’s on track to re-list in China before the end of this year.
At the same time, Wuxi AppTech is in new headlines that say the company is talking with a Chinese investment bank about moving ahead with its plans to list on China’s A-share market. (Chinese article) Similar to Qihoo, the reports on Wuxi AppTech are a bit technical, saying the company has made a filing stating it has completed its ownership reform and who its current owners are.
It’s probably slightly premature to say that these early steps mean the regulator has already agreed to let these offerings go ahead. But in China, and many other parts of the world as well, companies like this usually wouldn’t make this kind of filing if they weren’t somewhat confident of getting the green light to make listings.
As I’ve said already, the regulator is under pressure to let such high-quality companies skip to the head of the line to provide investors with better choices and also some stability to China’s volatile markets. Accordingly, these two announcements do seem to signal a new level of confidence from both Wuxi AppTech and Qihoo, and I do expect that both will achieve A-share listings by year-end.